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DIY investing, or use an advisor?

I wrote an article for Smart About Money, the personal finance site of the Association of Saving and Investing of South Africa, based on discussions of this question with a number of experts. This is the short version …

DIY investing is a bit like self-medicating, says Lara Warburton, managing director of Integral Wealth and the Financial Planning Institute’s Financial Planner of the Year 2023. She says managing your money alone “can all work out fine, but there are times when you look back and wish you had just gone to the doctor first. It would have saved a lot of time, and often a lot of money”.

Suzan Ramotshabi, retirement products specialist at etfSA, the exchange traded fund (ETF) platform, can see why investors might think online investment platforms provide them with everything they need to do it themselves, but those in the know will tell you that it is “not as easy as it seems”.

Ramotshabi, a Certified Financial Planner (CFP), says “most clients start looking for a financial adviser when they have failed”, or “they have a crisis”.

Carel Nolte, chief marketing officer at EasyEquities, says “There is a place for both [do-it-yourself and advisers], and for a hybrid. It all depends on the user.”

Nolte lists some of the benefits of DIY investing as cost savings, speed, easy access and “the joy/fun of learning and engaging with your investments and being a part of an investor community”.

Investments are just a part of it

Photo by Mathieu Stern via Unsplash

One of the biggest risks for DIY investors, says Craig Turton, partner at PSG Bedfordview, is that they focus their attention on their investment portfolio and ignore all other aspects of financial health, such as estate planning, tax efficiency, insurance, retirement planning, currency and inflation protection.

Meyer Coetzee, who is head of alternative distribution at Prescient, adds that tailoring a plan to fit your individual or family’s needs is a big part of the service. “There are many other things to consider, like risk cover (lifedisability and short-term cover), medical and health, wills, tax, budgetingdebt management, etc.”

Good advice can be especially important for those who are planning to retire soon. Ramotshabi says an adviser will help you start thinking about the big change ahead and make adjustments early. “Without an adviser you would just retire and discover the pitfalls that could have been prevented later.”

Keep emotions out of it

An adviser can also manage your behaviour. Coetzee says there is a danger that as a DIY investor you will not have the required patience or conviction to stick to an appropriate strategy through periods of volatility. He says an adviser should also “protect you from yourself by preventing you from making emotional decisions or following the herd”.

Is the cost worth it?

Ramotshabi says research by Morningstar on the value of advice “concluded that advisers can add more than 1% a year over one’s savings life through prudent planning and choices”.

Advisers charge in different ways for different products and services, some charge a flat fee or an hourly rate, others charge a percentage of the value of investments. Whatever the charge is, it is your right to know how much you are paying, what you are paying for, and how and when that fee will be extracted.

Prescient’s Coetzee suggests you ask your adviser to document how you can decide in future whether they are adding value or not and do this assessment at least once a year.

“Let the adviser explain to you what an appropriate benchmark return would be (relative to say a market benchmark and not in absolute percentage terms), what the risks are to your portfolio, what will be considered a good environment and a bad one etc. Write that all down and measure against that the next time you meet. Don’t just fall for smooth talk after your memory has faded.”

Full article: Investing: Should you DIY, take advice or something in between?

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